An extremist, not a fanatic

June 18, 2009

Preferences in politics

What role should expressed preferences play in politics? Two apparently separate things raise this issue.First, Danny Finkelstein says that the Iranian protests show that Iranians, like us, want freedom. But imagine that the Iranian regime were even more repressive than it is, that agitators for freedom had been killed or imprisoned and that others who once wanted freedom had either given up hope of ever getting it, or were scared to speak up for it for fear that they would be alone. There would then be no protests. But the case for freedom would be no weaker. In this sense, Iranians’ stated preference for freedom does not increase the case for them having freedom. That exists independently of what they say they want. Secondly, should the government listen to public concerns about immigration? Doing so would, no doubt, lead to tougher immigration restrictions. But as I’ve said, this would be bad for the economy. What’s more, these concerns might be biased. It’s easy to overstate the extent to which immigrants “take British” jobs, because it’s easy to see a foreigner doing a job a Brit could do. Equally, the pressure migrants put upon public services is magnified by the media. The availability heuristic can therefore cause people to over-estimate the harm of immigration.There are two common themes in these stories. One is that fulfilling stated preferences needn’t lead to good outcomes. People cowed and broken by dictatorship mightn’t call for freedom. But they should still get it. And conversely, giving people what they want can be illiberal, inefficient or unjust. Secondly, stated preferences can be mistaken. In my Iran counter-factual, the problem is adaptive preferences and information cascades. In my immigration example, it’s a cognitive bias.Which leads me to a paradox. There is an increasing fashion in recent years for letting people have their say - be it radio phone-ins, have your say features, calls for referenda and demands to listen to the people on immigration and MPs’ expenses. But this fashion has existed alongside the rise in interest in cognitive biases research, which shows that public preferences can be systematically biased, which implies we should pay less heed to what they say they want.And alongside this lies a second paradox. The calls for people to have their say often come in areas where the people have no specific expertise and where their opinions are likely to be biased: immigration, for example, or the Lisbon treaty. But in areas where people might have useful dispersed knowledge - how to improve local public services or how to better run companies - there is less demand (though not none) to listen to them. What are the solutions to these problems? My answer is to use demand-revealing referenda - because when people have money on the line they are more rational - and to hope that institutional change improves the public character, and to empower workers. Are there better answers? Or have I misdiagnosed the problem?

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And alongside this lies a second paradox. The calls for people to have their say often come in areas where the people have no specific expertise and where their opinions are likely to be biased: immigration, for example, or the Lisbon treaty.

With you on immigration here but Lisbon? You think we're not capable of understanding the implications?

"The calls for people to have their say often come in areas where the people have no specific expertise and where their opinions are likely to be biased: immigration"

A lot of these people live in communities that have high immigration and social problems. In that sense these people have some specific expertise that a middle-class, privately educated MP doesn't. Or an economist who is biased towards the impact of immigration on GDP rather that social issues which are harder to define and measure.

Also these people are usually being honest, whereas its hard to judge whether a politician's stated views aren't biased towards a specific political goal.

"where the people have no specific expertise and where their opinions are likely to be biased: immigration, for example, or the Lisbon treaty."

It is most fortunate then, that there is no requirement for "specific expertise" to understand the most essential point about Lisbon. That the self amending clause means that you cannot rely on any other part of the treaty and that this will be the last opportunity to have any significant say on the direction that the EU takes.

Surely there's a better idea than demand-revealing referenda? If you get a lot of people to describe a problem - using something like www.debategraph.org and then you crowdsource their judgement to say what weight individual components of an argument should be given, then you have something that involves anyone who wants to get involved, educates them about all of the issues and provides real data that will improve decision-making. It would lower the 'decision costs' considerably.

Your demand revealing referenda will always exclude the vast majority of people that will not ever be intersted in providing you with and demands that any process will ever reveal.

What I understand you to be saying is that fulfilling the stated preferences of a group (let's assume for simplicity that the group can speak with unanimity) may not lead to the best outcome. You suggest 3 reasons:

2. Implementing the group's preferences would lead to an outcome that is unacceptable either (i) from a moral perspective ('illiberal [...] or unjust') or (ii) from an efficiency perspective ('bad for the economy', 'inefficient'). On this latter point about efficiency, what I think you are getting at when you say that restricting the movement of labour is 'bad for the economy' is that free movement of labour is potentially welfare-enhancing for all the constituents of an economy so long as any native workers who lose out from immigration are compensated with transfer payments. Correct me if I'm wrong about that, but it's not at all clear what the expression 'bad for the economy' means.

3. The group's preferences may be 'mistaken', in the sense that the freely stated preferences of the group may not actually be in the group's interest and the group's welfare can be enhanced by implementing an alternative to its stated preference.

If I've got it right, I think there's a lot to disagree with here!

Taking 1, I think it's clear that it's desirable that people should be able to state their preferences freely. There's not much interesting to say here.

Taking 2(i) this seems intuitively right - the classic example in the UK being capital punishment, with most people saying (in opinion polls at least) that they would like to reinstitute the death penalty. We tend to have constitutional or treaty-based checks and balances to prevent these kinds of bad outcomes.

2(ii) is where I start to part company with you. Taking your immigration example, let's assume (until we get to 3) that the group is not 'mistaken' i.e. it does know what's in its best interests, and it decides to oppose unlimited immigration. That might be because it takes into account factors other than measurable economic efficiencies (e.g. erosion of social capital). Alternatively, it might be because the transfer payments required to ensure that everybody is better off cannot happen for some reason. In practice, it is surely the case that these transfer payments do not happen - the economists' hypothetical redistributive lump sum payments remain hypothetical.

So there are plausible reasons why a group may prefer an outcome that appears economically inefficient. You would have to explain on what grounds you could impose your view, based on a theoretical efficiency argument, on the group rather than allowing the group to make its own decision. That sounds to me like dictatorship, and a bad one at that!

Moving to 3, where we now assume the group can be 'mistaken' about what's in its own economist self interest. It's intuitively right that this situation can arise - for example, most Americans wanted a reduction in government deficit spending in the late 30s and when they got their way the economic results were pretty bad (see recent entries on Paul Krugman's blog). But it's pretty hard to know ex ante when that's the case. The implication of your view is dictatorship again, but this time a benevolent-minded one, on the assumption that demand-revealing referenda could only ever have pretty limited applicability (how would they be used to determine the level of immigration in the absence of indisputable data about the economic impacts of immigration?) We could debate whether immigration is an example of an issue where the people have got their economics wrong and their views should be ignored by more enlightened policymakers, but it's certainly not a clear cut example.

An aside: to me it's pretty clear that the Labour government's policy with respect to immigration has been to ignore most voters' concerns and allow unprecedentedly high levels of net migration, on the grounds of alleged economic efficiency. It is no surprise to me that the constituency that has most vociferously and unanimously supported this policy is the business community (i.e. the owners and stewards of capital). Like others of your contributors, I'm continually puzzled by the apparent alliance between some parts of the left and the owners of capital on this issue - to me it's obvious who takes away more from the resulting policies.

In summary:
- Yes, we need legal and constitutional checks and balances to ensure that voters' preferences don't trump certain fundamental principles (we can debate which).
- Theoretical notions of economic efficiency should not necessarily trump voters' preferences, which may incorporate consideration of other relevant factors such as the practicability of bringing about the economically efficient outcome.
- Benevolently ignoring voters' preferences on the grounds that these don't reflect their best interests should be the preferred approach only when there are very clear-cut grounds for believing this is the case.
- Immigration is not an example of such a clear-cut case.

I think it's a matter of proper understanding of the situations which need deciding over, not expertise per se. The problem with giving people what they want is that they do not often understand the implications of the action they prefer fully. On the other hand, the problem with neglecting to listen to the pleas of the people is that their side is not well-represented when making rulings and decisions affecting the nation. What's important is open and proper dialogue and information dissemination in this case.